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Dell’s Turnaround: Not Bad

Posted on Tuesday, Dec 4th 2007

On November 29, Dell (Nasdaq: DELL) reported results for its third quarter of fiscal year 2008 ending 2 November, 2007. Earlier posts are available here and here. Revenue was $15.6 billion, up 9% y-o-y. Operating income increased 13% to $829 million and EPS was $0.34 (up 26% y-o-y) driven by strength in mobility, solid demand in enterprise products and a favorable component-cost environment.

Mobility products revenue went up 19% y-o-y and 22% q-o-q to $4.7 billion. Desktop revenue decreased 1% y-o-y and 5% q-o-q to $4.8 billion, with the industry shifting towards mobility. Revenue from both servers and storage increased 8% y-o-y. Enhanced services revenue increased 7% to $1.4 billion. Software and peripherals revenue increased 11% y-o-y.

The SEC investigation concluded this quarter and Dell filed past due SEC reports for Fiscal 2003, 2004, 2005 and 2006 as well as Q1 fiscal 2007. The company plans to resume its share repurchase program in early December.

At the end of Q3, Dell invested $106 million in acquisitions. In Q4, it completed the $340 million acquisition of ASAP software. It has also announced plans to acquire EquaLogic, the leading provider of iSCSI storage area networks for small and medium business and Everdream, a provider of remote client management software..

An aside on EquaLogic: In my post on VMware, I mentioned that EquaLogic is a competing virtualization company to VMWare. However, since then, I spoke with the EquaLogic folks, and they explained that it does not actually compete with VMware. EquaLogic is mainly hardware and offers storage virtualization capabilities, whereas VMware is software and offers server virtualization capabilities. So, they in fact complement each other, as evident in various partnerships that the two companies are pursuing.

Dell is now focusing on the key areas of Consumer, Emerging Countries, Notebooks, Enterprise, and Small Business. Dell is also focused on increasing its distribution channels beyond its once innovative and wildly successful direct, over-the-internet model. Dell products are available in nearly 10,000 stores including Gome, China’s largest consumer electronics retailer, and Staples’ 1,400 stores across the U.S. Combined Brazil, Russia, India and China (BRIC) revenue grew 32% in the quarter. China, Brazil, Russia, and India showed revenue growth of 22, 45, 72, and 47%, respectively.

For the SMB market, Dell launched the PowerVault MD3000i which simplifies storage consolidation and Vostro, a dedicated brand for small business. Time Magazine’s Best Inventions of 2007 issue recently labeled the Dell XPS M1330 notebook as a “dream machine”. A touch-screen laptop is also on the cards.

Its stock is trading around $24 after hitting a 52-week high of $30.77 on October 31. Market cap is around $55 billion. Looks like the turnaround isn’t going so badly. I would still like to see a Smartphone product announcement from Dell, be it organic or via acquisitions.

Dell Inc. (DELL)

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